Sunset review of the Municipal Tax Code Commission

ARIZONA STATE SENATE
RESEARCH STAFF
TO: JOINT LEGISLATIVE AUDIT COMMITTEE
Representative John Huppenthal, Chair
Senator Robert Blendu, Vice Chair
DATE: January 4, 2005
SEANLAUX
LEGISLATIVE RESEARCH ANALYST
FINANCE COMMlTIEE
Telephone: (602) 926-3171
Facsimile: (602) 926-3833
SUBJECT: Sunset Review of the Municipal Tax Code Commission
Attached is the final report ofthe sunset review ofthe Municipal Tax Code Commission, which
was conducted by the Senate Finance and House of Representatives Ways & Means Committee of
Reference.
The Committee of Reference recommends that the Municipal Tax Code Commission be
continued for ten years.
This report has been distributed to the following individuals and agencies:
Governor of the State of Arizona
The Honorable Janet Napolitano
President of the Senate
Senator Ken Bennett
Senate Members
Senator Dean Martin, Cochair
Senator Jack W. Harper
Senator Marilyn Jarrett
Senator Jack A. Brown
Senator Jorge Luis Garcia
Municipal Tax Code Commission
Office of the Auditor General
Department of Library, Archives & Public Records
Senate Majority Staff
Senate Research Staff
Senate Minority Staff
Senate Resource Center
SL/jas
Speaker of the House ofRepresentatives
Representative Jake Flake
House Members
Representative Steven Huffman, Cochair
Representative Ken Clark
Representative Jack Jackson, Jr.
Representative Michele Reagan
Representative Steven Yarbrough
House Majority Staff
House Research Staff
House Minority Staff
Chief Clerk
Senate Finance and House ofRepresentatives Ways & Means
Committee ofReference Report
MUNICIPAL TAX CODE COMMISSION
Background
The Municipal Tax Code Commission (MTCC) was established byLaws 1998, Chapter 107 and
subsequently extended by Laws 1991, Chapter 160, Laws 1999, Chapter 225 and Laws 2000, Chapter
297. The law also provided that all cities and towns that impose a transaction privilege tax adopt the
Model City Tax Code. The Model City Tax Code and the MTCC were established to create greater
unifonnity in city transaction privilege tax ordinances.
The MTCC is required to meet on the second Friday of every other month to review and
comment on any changes to a city ordinance submitted by a city, town or taxpayer that modify the
application ofthe Model City Tax Code for that city or town.. The MTCC may hold public hearings on
any proposed amendment within 30 days of receiving the proposed change and may recommend
changes to the language submitted by the city, town or taxpayer. Changes in tax rates are not subject to
the Commission's review, but municipalities must notify the Commission within 10 days after passing
an ordinance imposing a rate change.
A city or town must submit a proposed amendment (other than tax rate changes) to the MTCC at
least 60 days prior to adoption. The MTCC must notify all cities and towns of any changes to the
Model City Tax Code adopted by a municipality. The MTCC may recommend that the change be
adopted by all cities and towns. In addition, the MTCC maintains a master list ofall amendments to the
Code which have been adopted by the various municipalities. Failure to approve a change to the Model
City Tax Code by the MTCC does not prohibit the municipality from adopting the change. However,
the municipality must notify the MTCC of all final action.
The Joint Legislative Audit Committee assigned the review ofa perfonnance audit ofthe MTCC
to the Senate Finance and House of Representatives Ways and Means Committee of Reference.
Commission Membership
The MTCC consists of a representative of the Department of Revenue and nine mayors or
council members of cities or towns that have adopted the model city tax code. Five members are
appointed by the Governor, two members are appointed bythe President ofthe Senate and two members
are appointed by the Speaker of the House of Representatives. No more than two members of the
Commission may be from the same city or town and their tenns are three years. The Department of
Revenue representative serves as an ex officio member without the power to vote.
The Department of Revenue provides staff support for the MTCC. The MTCC receives no
direct funding from the state or the cities and towns.
The MTCC must prepare an annual report before January 1 of each year.
A.R.S. § 41-3005.12 dictates that the Commission is to tenninate on July 1, 2005, unless
continued.
Committee Sunset Review Procedures
The Committee of Reference held one public hearing on Tuesday, November 30, 2004, to
review the sunset factors prepared by the Commission and to receive public testimony. Testimony was
received from representatives of the Commission.
Committee Recommendations
The Committee of Reference recommends that the Municipal Tax Code Commission be
continued for ten years.
Sunset Report Requirements Pursuant to A.R.S. § 41-2954
I. Identification of the problem or the needs that the agency is intended to address.
The Commission is an integral part of the compromise established in the late 1980s
between the business community and the cities and towns ofArizona relating to the local sales
tax. The initial oversight responsibility ofthe Commission over the Model City Tax Code and
now the requirement of approval of changes to the tax code by the Commission give the
business community some consistency and certainty in dealing with the local sales tax structure.
This role has also been a deterrent to individual city changes to the code, meaning there are
fewer differences between and among the cities and how they tax.
II. Statement of the objectives of the agency and its anticipated accomplishments.
Through the public hearing process, the Commission is required to review and comment
on proposed changes to the Model City Tax Code adopted by the cities and towns in the State of
Arizona. The Model City Tax Code is a uniform transaction privilege (sales) tax code that
contains varying options within a taxable activity that a city or town can select without the
approval of the Commission. The Commission, in addition to reviewing and commenting on
proposed changes to the Code, may recommend changes to language presented and may
recommend changes to the Code to all cities and towns. Specifically excluded from review by
the Commission is any increase in rate. All changes adopted by a city or town are required to be
kept on file.
III. Identification of any other agencies with similar, conflicting or duplicative objectives and
an explanation of the manner in which the agency avoids duplication or conflict with other
such agencies.
There is no other agency with similar, conflicting or duplicate objectives.
IV. Assessment of the consequences of eliminating the agency or of consolidating the agency
with another agency.
If the Commission was eliminated, its oversight role over the Model City Tax Code
would be lost. This risks the possibility ofnumerous changes to the tax code by individual cities
and towns, thereby creating more difference among cities and between the cities and the state.
Consolidating the Commission with another agency would prove difficult due to the unique
nature of the Commission.
Attachments
1. Agenda of the Senate Finance and House of Representatives Ways & Means Committee of
Reference.
2. Meeting Minutes of the Senate Finance and House of Representatives Ways & Means
Committee ofReference.
3. Agency response to the Sunset Questionnaire
4. League of Arizona Cities and Towns response
5. 2003 Annual Report
Senate Finance and House of Representatives Ways & Means
Committee of Reference
Meeting Agenda
Interim agendas can be obtained via the Internet at http://www.azleg.state.az.us/lnterimCommittees.asp
ARIZONA STATE LEGISLATURE
INTERIM MEETING NOTICE
OPEN TO THE PUBLIC
SENATE FINANCE AND HOUSE OF REPRESENTATIVES
WAYS AND MEANS COMMITTEE OF REFERENCE
Date:
Time:
Place:
Tuesday, November 30, 2004
10:00 a.m.
Senate Hearing Room 1
AGENDA
1. Call to Order
2. Opening Remarks
3. Non-sunset Audit on the Gila County Transportation Excise Tax
• Presentation by the Office of the Auditor General
• Public Testimony
• Discussion and Recommendations by Committee of Reference
4. Sunset of the Board of Tax Appeals
• Presentation by the Board of Tax Appeals
• Public Testimony
• Discussion and Recommendations by Committee of Reference
5. Sunset of the Municipal Tax Code Commission
• Presentation by the Municipal Tax Code Commission
• Public Testimony
• Discussion and Recommendations by Committee of Reference
6. Adjourn
Members:
Senator Dean Martin, Cochair
Senator Jack Brown
Senator Jorge Garcia
Senator Jack Harper
Senator Marilyn Jarrett
11/19/04 cd
Representative Steve Huffman, Cochair
Representative Ken Clark
Representative Jack Jackson Jr.
Representative Michele Reagan
Representative Steven Yarbrough
Persons with a disability may request a reasonable accommodation such as a sign language interpreter, by contacting the
Senate Secretary's Office: (602)926-4231 (voice). Requests should be made as early as possible to allow time to arrange the accommodation.
Senate Finance and House of Representatives Ways & Means
Committee of Reference
Meeting Minutes
ARIZONA STATE LEGISLATURE
Forty-sixth Legislature - Second Regular Session
SENATE FINANCE AND HOUSE OF REPRESENTATIVES
WAYS AND MEANS COMMITTEE OF REFERENCE
Minutes ofMeeting
Tuesday, November 30, 2004
Senate Hearing Room 1-10:00 a.m.
Chainnan Martin called the meeting to order at 10:03 a.m. and attendance was noted by the
secretary.
Members Present
Senator Brown
Senator Garcia
Senator Harper
Senator Martin, Cochair
Senator Janett
Members Absent
Speakers Present
Representative Reagan
Representative Yarbrough
Representative Huffman, Cochair
Representative Clark
Representative Jackson
Sean Laux, Research Analyst, Senate Family Services Committee
Carol West, Member, Tucson City Council; Vice Chair, Municipal Tax Code Commission
Dot Reinhard, Auditor General's Office
David Patterson, Finance Director, Gila County
Ruben Medina, Executive Director,'Arizona State Board of Tax Appeals
Sean Laux, Research Analyst, Senate Family Services Committee, reviewed the responsibilities
of the Committee of Reference (COR). He noted that sunset hearings will be conducted on the
Arizona State Board of Tax Appeals (BOTA) and the Municipal Tax Code Commission
(MTCC), as well as a non-Slillset audit of the Gila County Transportation Excise Tax.
Sunset of the Municipal Tax Code Commission
Carol West, Member, Tucson City Council; Vice Chair, Municipal Tax Code Commission,
provided historical background on fOlTllation of the MTCC. She stated that the oversight role of
the MTCC has provided a check against inconsistent changes to the Model City Tax Code by
SENATE FINANCE AND HOUSE WAYS AND MEANS
COMMITTEE OF REFERENCE
November 30, 2003
individual cities and towns, as well as a forum for the business corrununity to comment upon
proposed changes and suggest changes of their own. The MTCC meets only when necessary and
operates at essentially no cost to the State, except for minimal staffing by the Arizona
Department of Revenue (DOR). Recognizing the great importance of the local sales tax as a
revenue source for all cities and towns in Arizona, she believes the Commission should be
continued. The MTCC gives the business community a place to object or voice concerns about
this local tax, and consistency in changes to the code, while preserving local authority over the
most important local revenue source.
Mr. Huffman moved that the Committee make a recommendation to
continue the Municipal Tax Code Commission for an additional 10 years.
The motion carried.
Audit on the Gila County Transportation Excise Tax
Dot Reinhard, Auditor General's Office, reviewed the audit performed on the Gila County
Transportation Excise Tax (Attachment 1).
Senator Brown remarked that the funds were not necessarily spent illegally, but for the public
benefit, and cautioned against over-regulating.
Senator Martin stated that he is especially concerned about the gifts with public monies and
suggested that the Committee meet again during the next interim to make sure the
recommendations are implemented.
Senator Brown noted that the problems were COlTected and changes were made. Also, the
Auditor General's Office would let the Members know if the recommendations are not
implemented.
Ms. Reinhard indicated to Mr. Yarbrough that the County agreed to determine the amount of
inappropriate expenditures and compare those against indirect costs for that particular fund
because monies were not transferred to the General Fund for indirect service costs. The County
believes the amount of inappropriate expenditures would be less than the amount that should
have been transferred to the General Fund for indirect costs. If that is the process the County
took to implement that recommendation, it would have to be looked at, but she made the
recommendation that going forward the County should follow appropriate accounting procedures
and transfer that money to the General Fund for indirect service costs. As far as remedies, in the
past the Attorney General's Office was involved in cases where counties inappropriately used
excise tax monies and agreements were established to reimburse the funds appropriately.
Senator Martin asked about non-public groups that received monies. Ms. Reinhard responded
that has not yet been determined, but there is the potential of expenditures that violate public
monies where she does not believe the General Fund could be used to reimburse the Road Fund.
At this point, she is not sure how those would be handled.
Senator Martin could not recall the statutory penalty, but submitted that it is fairly severe.
SENATE FINANCE AND HOUSE WAYS AND MEANS
COMMITTEE OF REFERENCE
November 30, 2004
2
David Patterson, Finance Director, Gila County, stated that he does not know how the auditors
came up with 11 percent in questionable costs. Originally, the auditors conducted a random
sample over three years, pulling 40 items per year, and found one item that was questionable.
Based on that, the auditors said it was an attribute sampling versus a variable sampling, but he
does not believe 1 item out of 120 equates to 11 percent questionable items. The auditors then
started doing judgmental samples, and when that is done, specific items are looked for, and those
cam10t be projected to the population as a whole. Some of the items that were questioned are not
that significant, although they are against the statutes. For example, $500 for Kids Voting out of
$2.5 million for one year and $48 for flowers from the community for someone's funeral. The
Board of Supervisors was notified that those kinds of decisions cannot be made without
identifying that it is for the betterment of the community and initialing the request. The County
is in the process of correcting those items.
Senator M31iin remarked that using money from the transportation plan for the public good
becomes problematic no matter the amount. He requested the specifics of changes that need to
be made, the illegal or inappropriate expenditures, and the plan detailing the fix.
Mr. Patterson indicated to Ms. Reagan that he is not opposed to a review by the Auditor General
in six months, but the presentation by the Auditor General's Office implied that the issue is more
horrendous than it actually is. In fact, the funds were spent inappropriately; however, he believes
the $500 donated to Kids Voting should be allowable. The only problem was that the supervisor
did not initial the request, but believed it was in the best interest of the cormnunity to make the
donation.
Ms. Reag311 commented that if the Auditor General's findings are somewhat inflated, perhaps
another audit would help clear the County's name.
Mr. Patterson advised Senator Martin that Kids Voting is not necessarily beneficial to
transportation as it is to the cormnunity, but it was not public money given to a private charity
that had no benefit to the community. It was not appropriate to be part of the transpoliation tax,
but that is something that has been changed. At one time, the County had three road crews that
were consolidated into one public works. Constituent Services was paid out of the Road Fund,
but that was offset by what the County considers chargeable indirect costs. A decision was made
that was inappropriate because the two could not be identified, so Constituent Services was
pulled from the Road Fund and put into the General Fund where the County began charging the
indirect costs. The County is in the process of making things more compartmentalized, which is
also why a new financial accounting system will be implemented in J31mary 2005.
Mr. Huffman stated that a memo from Mr. Nelson, the current County Manager, states that he
agrees to all of the s31nple inappropriate expenditures amounting to over $46,000, the County
needs to improve the auditing process, and there may actually be more than $46,000 that the
County is attempting to identify and develop potential solutions.
Senator Martin stated that he appreciates the efforts that have been made, and therefore, does not
recommend any action on the Legislature's behalf this session, but he would like to follow-up
SENATE FINANCE AND HOUSE WAYS AND MEANS
COMMITTEE OF REFERENCE
November 30,2004
3
with the Auditor General's Office and possibly hold another Committee meeting if the issues
have not been worked out and reimbursement made.
Sunset of the Board of Tax Appeals
Ruben Medina, Executive Director, Arizona State Board of Tax Appeals, conveyed that he has
been in this position since BOTA was created in 1974 and has handled many thousands of tax
appeals in all areas of taxation. The sunset review report submitted to the COR on
September 1, 2004 addresses all of the factors requested by the Committee. The Board consists
of three members and staff includes himself, a hearing officer, and a secretary. There were
previously five full-time employees, but now there are only three due to budget reductions. The
caseload can only be handled because of a decrease in cases from previous years.
He stated that the type of cases that are heard are generally very complex after having gone
through various appeals at DOR and the Office of Administrative Hearings (OAR), which
handles sales and use tax type cases; however, BOTA has a very well qualified board of
professionals. He conveyed that the number of months to process appeals was reduced from
seven-and-a-half in 1999 to four-and-a-half presently. BOTA makes decisions within 30 days
that are disseminated throughout the country because requests are constantly made since many
times the decisions address issues of first impression. In 2002, BOTA completely revised the
rules and procedures, shortening the appeals process.
He anticipated additional appeals to be filed, not only later this fiscal year, but next fiscal year,
mainly because of a $6.5 million appropriation by the Legislature to DOR for the revenue­generating
program. With that, an additional 153 FTEs were appropriated, which will cause
more audits and protests to DOR, and eventually, more appeals to BOTA. If additional funding
is needed for another hearing office, a supplemental may be requested from the Joint Legislative
Budget Committee, but until that happens, additional funding will not be requested.
He indicated to Ms. Reagan that BOTA rules for DOR about 80 percent of the time. From
tracking through the Attorney General's Office, the courts upheld BOTA's decisions about
90 percent of the time.
Mr. Huffman moved that the Committee recommend continuation of the
Board of Tax Appeals for an additional 10 years. The motion carried.
\Vithout objection, the meeting adjourned at 10:48 a.m.
(Original minutes, attachment, and tape are on file in the Office of the Chief Clerk.)
SENATE FINANCE AND HOUSE WAYSAND MEANS
COMMITTEE OF REFERENCE
November 30,2004
4
Agency Response
MUNICIPAL TAX CODE COMMISSION
JANET NAPOLITANO
GOVERNOR
CAROL W. WEST
VICE-CHAIR
KERRY BALLARD
MEMBER
GINNY HANDORF
MEMBER
GREG STANTON
MEMBER
November 16, 2004
Dean Martin, State Senator
Chair, Senate Finance Committee ofReference
Arizona State Senate
1700 West Washington
Phoenix, AZ 85007
KEN FORGIA
CHAIRPERSON
GILBERT LOPEZ
MEMBER
CLAUDIA WALTERS
MEMBER
ELAINE SCRUGGS
MEMBER
ROWLE SIMMONS
MEMBER
VINCENT G. PEREZ
EX-OFFICIO MEMBER
RE: Sunset review of the Municipal Tax Code Commission
Dear Senator Martin:
I have been asked to respond on behalf of Ken Forgia, Chairman of the Municipal Tax Code
Commission to your letter ofAugust 24,2004, with its accompanying questionnaire regarding the sunset
review of the Municipal Tax Code Commission. The answer to your questions are as follows:
1. The objective andpurpose ofestablishing the agency.
The objective and purpose of establishing the Municipal Tax Code Commission was to provide,
through the public hearing process, review and comment on proposed changes to the Model City
Tax Code adopted by the cities and towns in the State of Arizona.
The role of the Municipal Tax Code Commission is to review and comment on any changes in
language to the Model Cities Tax Code ("Code") proposed by the Public, the Unified Audit
Committee or any city that has adopted the Code. The types of changes reviewed by the
Commission is any language for the purpose of describing, defining, deleting, adding or
otherwise modifying taxable activities, exemptions, administrative procedures or regulations as
defined in A.R.S. §42-6053.B.
1600 West Monroe Street, Phoenix AZ 85007-2612 www.revenue.state.az.us
The Commission may hold public hearings for the purpose of reviewing and receiving
comments on the proposed changes from the Cities and any interested parties. Once all the
facts have been presented to the Commission, the changes are evaluated and if any changes
are deemed appropriate the Commission recommends those changes. The Commission's
decision on any particular issue and cities and towns are required to abide by those decisions.
2. The effectiveness with which the agency has met its objective and purpose and the efficiency
with which it has operated.
The Commission has been an effective review body for all issues and changes pertaining to
the Model City Tax Code.
3. The extent to which the agency has operated within the public interest.
The Commission has met its obligation to the public interest in following its purpose and
meeting its objectives.
4. The extent to which rules adopted by the agency are consistent with the legislative mandate.
The Commission has adopted no rules.
5. The extent to which the agency has encouraged input from the public before adopting its
rules and the extent to which it has informed the public as to its actions and their expected
impact on the public.
The Commission has encouraged input form the public by holding public hearings on
changes proposed to the Model City Tax Code. The Commission also maintains a database
of interested parties that are notified of any meetings. The Commission, through its staff
continually updates the public on changes made to the Model City Tax Code, including
changes in rates of taxation which are not subject to any recommendations of the
Commission.
6. The extent to which the agency has been able to investigate and resolve complaints that are
within its jurisdiction.
No complaints, within the purview of the Commission have been brought before it.
7. The extent to which the attorney general or any other applicable agency ofstate government
has the authority to prosecute actions under the enabling legislation.
There are no provisions under the enabling legislation for prosecution by the attorney
general.
8. The extent to which agencies have addressed deficiencies in their enabling statutes which
prevent them from fulfilling their statutory mandate.
There have been no problems fulfilling the Commission's statutory mandate.
9. The extent to which changes are necessary in the laws of the agency to adequately comply
with the factors listed in this subsection.
At this time there are no perceived changes necessary to allow the Commission to adequately
comply with the factors listed in this subsection.
10. The extent to which the termination ofthe agency would significantly harm the public health,
safety or welfare.
Termination of the Commission would leave a gap in the checks and balances necessary to
avoid conflicting changes to the cities taxing statutes and to maintain consistency in the
Model City Tax Code.
11. The extent to which the level of regulation exercised by the agency is appropriate and
whether less or more stringent levels of regulation would be appropriate.
The Commission acts as a deterrent to the enactment of arbitrary changes in the city/town
taxing statutes by individual city/town councils. This is accomplished by bringing other than
routine housekeeping changes to the public awareness and providing an evaluation of the
changes from a source independent of city/town politics.
12. The extent to which the agency has used private contractors in the performance ofits duties
and how effective use of private contractors could be accomplished.
The Commission has not used private contractorsin the performance of its duties.
The membership of the Municipal Tax Code Commission is regulated by A.R.S. §42-6052
and A.R.S. §42-6053. The Director of the Department of Revenue (or his designee) is ex­officio
member, without a vote. Five members are appointed by the Governor, Two
members are appointed by the President of the Senate and two members are appointed by the
Speaker of the House of Representatives totaling nine members who are mayors or council
members of cities or towns that have adopted the model city tax code. The current
Commission is made up as follows: Vice-Mayor Ken Forgia of Peoria (Chairman), Mayor
Elaine Scruggs of Glendale, Councilmember Carol W. West of Tucson, Mayor Rowle
Simmons of Prescott, Councilmember Greg Stanton ofPhoenix, Vice-Mayor Kerry L Ballard
of Snowflake, Vice-Mayor Gilbert Lopez of Coolidge, Vice-Mayor Claudia Walters of Mesa,
Councilmember Ginny Handorf of Pinetop-Lakeside and Vincent G. Perez, Assistant
Director, Department of Revenue sits as Ex-officio member. Joseph Lewandowski, Cities
Program Manager of the Department ofRevenue acts as staff for the Commission.
If I may be of further assistance or provide additional information, please do not hesitate to contact
me.
Very truly yours,
~0{fL~
Joseph H. Lewandowski
Commission Staff
Cities Program Manager
cc: J Elliott Hibbs, Director ADOR
Ken Forgia, Chairman
Commission members
Vincent G. Perez, Assistant Director ADOR
Kitty Decker, House Ways and Means Analyst
Steven Huffman, Representative
Sean Laux, Senate Finance Analyst
League of Arizona
~CIt·le·s A.ND lo~wns
December 15, 2004
1820 W. Washington. Phoenix,AZ 85007. Phone: (602) 258-5786 • Fax: (602) 253-3874
Email: league@mg.state.az.us •Web site: www.azleague.org
Mr. Sean Laux
Senate Finance Committee Analyst
1700 W. Washington St. - Senate Wing
Phoenix, Arizona 85007
Dear Sean:
The Department of Revenue has asked the League to respond to six questions in Senator Martin's
letter regarding the sunset of the Municipal Tax Code Commission (MTCC). This is our response.
1. Describe the role and function of the agency, including major activities/projects,
accomplishments and obstacles to success.
As we stated in our September letter to Senator Martin, the Commission is an integral part of
the compromise established in the late 1980's between the business community and the cities
and towns of Arizona relating to the local sales tax. The initial oversight responsibility of the
Commission over the Model City Tax Code and now the requirement of approval of changes
to the tax code by the Commission gives the business community some consistency and
certainty in dealing with the local sales tax structure. This role has also been a deterrent to
individual city changes to the code meaning there are fewer differences between and among
cities and how they tax. .
By its nature, the Commission reacts to proposed changes although it has in the past, when
appropriate, assumed the role of overseer to required changes to the code. For example,
after the last round of changes pursuant to amendment to state law, the Commission met and
discussed progress toward implementation of the changes. In addition to the Commission,
this also gave the business community and interested taxpayers an opportunity to comment
or complain about how the changes were being implemented or the schedule for
completion. This "forum" concept is an important part of the Commission's role.
In contrast to their work and major accomplishment of implementation of the various
changes to the tax code necessitated by the changes to state law, the Commission has not
been particularly active during the last year or so because no changes were brought forward
by either the cities or the business community. Their work will continue to ebb and flow
depending on issues presented. I do not see any obstacles to their success.
2. There are no full time employees of the Commission. The staffing has been done by the
cities program liaison at the Department of Revenue with only a very minor part of his time
dedicated to the Commission. There are no revenues or fees.
3. The problem or need the Commission is intended to address is the oversight role outlined in
our answer to the first question above.
4. The objectives of the Commission cannot really be quantified since it is set up to react to
proposed changes. Its anticipated accomplishments are to provide the oversight role also
outlined above.
5. There is no other agency with similar, conflicting or duplicate objectives.
6. If the Commission would be eliminated then the important oversight role would be lost
risking the possibility of numerous changes to the tax code by individual cities and towns
thereby creating even more differences among cities and between the cities and the State.
Because of the unique role this Commission plays, I know of no other agency with which it
could be consolidated.
I hope this provides you with the information you need. If not, please let me know and we will do
our best to respond.
Sincerely,
cc: Vince Perez
League of Arizona Cities & Towns Response
League of Arizona
~.~
Cities ANDTowns
September 16, 2004
Honorable Dean Martin
Chairman
Senate Finance Committee
1700 W. Washington St.
Phoenix, Arizona 85007
Dear Senator Martin:
1820WWashington. Phoenix,AZ 85007. Phone: (602) 258-5786. Fax: (602) 253-3874
Email: league@mg.state.az.us. Web site: www.azleague.org
The Municipal Tax Code Commission (Commission) is an integral part of the compromise established in the late
1980's between the business community and the cities and towns of Arizona. The oversight responsibility of the
Commission over the Model City Tax Code (MCTC) provides an excellent forum for municipalities and the
business community to discuss and work on improvements to the local sales tax system in Arizona.
The League of Arizona Cities and Towns interacts with the Commission on a regular basis. Any changes to the
MCTC must be approved by the Commission before a city or town can make any change that deviates from the
current language. The municipalities cannot make changes to the MCTC without having those changes approved
by the Commission. In this role the Commission has been a great place for industry representatives to bring
forward changes they are interested in and for the Commission, currently made up of locally elected officials,
to provide feedback to the industry on how potential changes might affect the incorporated cities and towns of
Arizona.
This role of mediator over the provisions of the MCTC has proven to be valuable and produced consensus on
all of the changes brought before the Commission over the past 15 years. The Commission has seemed to
balance fairly the needs of municipalities with the needs of the business community. Authorizing the
continuation of this commission would be an essential element to continuing the functioning balance between
local control and uniformity. With this we urge the members of this committee of reference to continue the
Commission and allow them to continue to play the role of mediator.
If you have any further questions regarding the Commission, please do not hesitate to contact us.
Sincerely,
Catherine F. Connolly
Executive DireGtor
2003 MTCC Annual Report
MUNICIPAL TAX CODE COMMISSION
JANET NAPOLITANO
GOVERNOR
CAROL W. WEST
VICE·CHAIR
KEN FORGIA
CHAIRPERSON
GILBERT LOPEZ
MEMBER
KERRY BALLARD
MEMBER
GINNY HANDORF
MEMBER
GREG STANTON
MEMBER
December 31,2003
ANNUAL REPORT
MUNICIPAL TAX CODE COMMISSION
MEMBERS
Ken Forgia, Vice Mayor, City of Peoria - Chairman
Carol W. West, Councilmember, City of Tucson - Vice-Chair
Elaine Scruggs, Mayor, City of Glendale - Member
Claudia Walters, Vice Mayor, City of Mesa - Member
Kerry Ballard, Vice Mayor, Town of Snowklake - Member
Gilbert Lopez; Vice Mayor, City of Coolidge - Member
Rowle Simmons, Mayor, City of Prescott - Member
Ginny Handorf, Councilmember, Town of Pinetop-Lakeside - Member
Greg Stanton, Councilmember, City of Phoenix-Member
Vincent G. Perez, Department of Revenue - Ex-officio Member
STAFF
Miguel Teposte, Administrator TPT, DOR
Joseph Lewandowski, DOR Cities Program Liaison
PURPOSE
CLAUDIA WALTERS
MEMBER
ELAINE SCRUGGS
MEMBER
ROWLE SIMMONS
MEMBER
VINCENT G. PEREZ
EX-OFFICIO MEMBER
The Municipal Tax Code Commission was created as a result of Laws 1988, Chapter 107, extended by Laws
1991, Chapter 160 (Appendix 1), and amended by Laws 1994, Chapter 305. It was again amended by Laws 1997,
Chapter 150, amended by House Bill 2193 Chapter 225 in 1999 and further amended by Senate Bill 1513, Chapter
297 in 2000. Through the pUblic hearing process, the Commission is required to review and comment on
proposed changes to the Model City Tax Code adopted by the cities and towns in the State of Arizona. The Model
City Tax Code, on file with the Secretary of State's Office, is a uniform transaction privilege (sales) tax code that
contains varying options within a taxable activity that a city or town can select without the approval of the
Commission. The Commission, in addition to reviewing and commenting on proposed changes to the Code, may
REVENUE BUILDING - 1600 WEST MONROE - PHOENIX, ARIZONA 85007
Municipal Tax Code Commission
Annual Report - 2003
Page 2
recommend changes to language presented and may recommend changes to the Code to all cities and towns.
Specifically excluded from review by the Commission is any increase in rate. All changes adopted by a city or
town are required to be kept on file.
2003 ACTIVITIES
The Municipal Tax Code Commission met once during the 2003 calendar year. The Commission's meeting was
held on September 12, 2003.
The Commission appointed a new chairman and vice-chairman. The new chairman is Mr. Ken Forgia Vice Mayor
of Peoria and the vice-chairman is Ms. Carol W. West Councilmember of Tucson. The Commission heard a
presentation from Byron Smith of the League of Arizona Cities and Towns. Mr. Smith presented for approval an
amendment to Regulation 520 of the Model City Tax Code. The recommended change will allow taxpayers
alternative methods for signing or verifying any report made to the city.
OTHER ITEMS
There were three new members appointed to the Commission: Councilmember Greg Stanton of Phoenix. He
replaces Councilmember Doug Lingner of Phoenix. Vice Mayor Gilbert Lopez. Vice Mayor Lopez of Coolidge
replaces Robert Mitchell of Casa Grande. Mayor Rowle Simmons. Mayor Simmons of Prescott replaces Tom
Eggleston of Glendale. There were also changes made to rates and options by various cities. However, none
required Commission action. The tentative meeting schedule for the 2004 Municipal Tax Code Commission is
listed below.
• January 9,2004
• March 12, 2004
• May 14, 2004
��� July 9, 2004
• September 10, 2004
• November 19, 2004

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ARIZONA STATE SENATE
RESEARCH STAFF
TO: JOINT LEGISLATIVE AUDIT COMMITTEE
Representative John Huppenthal, Chair
Senator Robert Blendu, Vice Chair
DATE: January 4, 2005
SEANLAUX
LEGISLATIVE RESEARCH ANALYST
FINANCE COMMlTIEE
Telephone: (602) 926-3171
Facsimile: (602) 926-3833
SUBJECT: Sunset Review of the Municipal Tax Code Commission
Attached is the final report ofthe sunset review ofthe Municipal Tax Code Commission, which
was conducted by the Senate Finance and House of Representatives Ways & Means Committee of
Reference.
The Committee of Reference recommends that the Municipal Tax Code Commission be
continued for ten years.
This report has been distributed to the following individuals and agencies:
Governor of the State of Arizona
The Honorable Janet Napolitano
President of the Senate
Senator Ken Bennett
Senate Members
Senator Dean Martin, Cochair
Senator Jack W. Harper
Senator Marilyn Jarrett
Senator Jack A. Brown
Senator Jorge Luis Garcia
Municipal Tax Code Commission
Office of the Auditor General
Department of Library, Archives & Public Records
Senate Majority Staff
Senate Research Staff
Senate Minority Staff
Senate Resource Center
SL/jas
Speaker of the House ofRepresentatives
Representative Jake Flake
House Members
Representative Steven Huffman, Cochair
Representative Ken Clark
Representative Jack Jackson, Jr.
Representative Michele Reagan
Representative Steven Yarbrough
House Majority Staff
House Research Staff
House Minority Staff
Chief Clerk
Senate Finance and House ofRepresentatives Ways & Means
Committee ofReference Report
MUNICIPAL TAX CODE COMMISSION
Background
The Municipal Tax Code Commission (MTCC) was established byLaws 1998, Chapter 107 and
subsequently extended by Laws 1991, Chapter 160, Laws 1999, Chapter 225 and Laws 2000, Chapter
297. The law also provided that all cities and towns that impose a transaction privilege tax adopt the
Model City Tax Code. The Model City Tax Code and the MTCC were established to create greater
unifonnity in city transaction privilege tax ordinances.
The MTCC is required to meet on the second Friday of every other month to review and
comment on any changes to a city ordinance submitted by a city, town or taxpayer that modify the
application ofthe Model City Tax Code for that city or town.. The MTCC may hold public hearings on
any proposed amendment within 30 days of receiving the proposed change and may recommend
changes to the language submitted by the city, town or taxpayer. Changes in tax rates are not subject to
the Commission's review, but municipalities must notify the Commission within 10 days after passing
an ordinance imposing a rate change.
A city or town must submit a proposed amendment (other than tax rate changes) to the MTCC at
least 60 days prior to adoption. The MTCC must notify all cities and towns of any changes to the
Model City Tax Code adopted by a municipality. The MTCC may recommend that the change be
adopted by all cities and towns. In addition, the MTCC maintains a master list ofall amendments to the
Code which have been adopted by the various municipalities. Failure to approve a change to the Model
City Tax Code by the MTCC does not prohibit the municipality from adopting the change. However,
the municipality must notify the MTCC of all final action.
The Joint Legislative Audit Committee assigned the review ofa perfonnance audit ofthe MTCC
to the Senate Finance and House of Representatives Ways and Means Committee of Reference.
Commission Membership
The MTCC consists of a representative of the Department of Revenue and nine mayors or
council members of cities or towns that have adopted the model city tax code. Five members are
appointed by the Governor, two members are appointed bythe President ofthe Senate and two members
are appointed by the Speaker of the House of Representatives. No more than two members of the
Commission may be from the same city or town and their tenns are three years. The Department of
Revenue representative serves as an ex officio member without the power to vote.
The Department of Revenue provides staff support for the MTCC. The MTCC receives no
direct funding from the state or the cities and towns.
The MTCC must prepare an annual report before January 1 of each year.
A.R.S. § 41-3005.12 dictates that the Commission is to tenninate on July 1, 2005, unless
continued.
Committee Sunset Review Procedures
The Committee of Reference held one public hearing on Tuesday, November 30, 2004, to
review the sunset factors prepared by the Commission and to receive public testimony. Testimony was
received from representatives of the Commission.
Committee Recommendations
The Committee of Reference recommends that the Municipal Tax Code Commission be
continued for ten years.
Sunset Report Requirements Pursuant to A.R.S. § 41-2954
I. Identification of the problem or the needs that the agency is intended to address.
The Commission is an integral part of the compromise established in the late 1980s
between the business community and the cities and towns ofArizona relating to the local sales
tax. The initial oversight responsibility ofthe Commission over the Model City Tax Code and
now the requirement of approval of changes to the tax code by the Commission give the
business community some consistency and certainty in dealing with the local sales tax structure.
This role has also been a deterrent to individual city changes to the code, meaning there are
fewer differences between and among the cities and how they tax.
II. Statement of the objectives of the agency and its anticipated accomplishments.
Through the public hearing process, the Commission is required to review and comment
on proposed changes to the Model City Tax Code adopted by the cities and towns in the State of
Arizona. The Model City Tax Code is a uniform transaction privilege (sales) tax code that
contains varying options within a taxable activity that a city or town can select without the
approval of the Commission. The Commission, in addition to reviewing and commenting on
proposed changes to the Code, may recommend changes to language presented and may
recommend changes to the Code to all cities and towns. Specifically excluded from review by
the Commission is any increase in rate. All changes adopted by a city or town are required to be
kept on file.
III. Identification of any other agencies with similar, conflicting or duplicative objectives and
an explanation of the manner in which the agency avoids duplication or conflict with other
such agencies.
There is no other agency with similar, conflicting or duplicate objectives.
IV. Assessment of the consequences of eliminating the agency or of consolidating the agency
with another agency.
If the Commission was eliminated, its oversight role over the Model City Tax Code
would be lost. This risks the possibility ofnumerous changes to the tax code by individual cities
and towns, thereby creating more difference among cities and between the cities and the state.
Consolidating the Commission with another agency would prove difficult due to the unique
nature of the Commission.
Attachments
1. Agenda of the Senate Finance and House of Representatives Ways & Means Committee of
Reference.
2. Meeting Minutes of the Senate Finance and House of Representatives Ways & Means
Committee ofReference.
3. Agency response to the Sunset Questionnaire
4. League of Arizona Cities and Towns response
5. 2003 Annual Report
Senate Finance and House of Representatives Ways & Means
Committee of Reference
Meeting Agenda
Interim agendas can be obtained via the Internet at http://www.azleg.state.az.us/lnterimCommittees.asp
ARIZONA STATE LEGISLATURE
INTERIM MEETING NOTICE
OPEN TO THE PUBLIC
SENATE FINANCE AND HOUSE OF REPRESENTATIVES
WAYS AND MEANS COMMITTEE OF REFERENCE
Date:
Time:
Place:
Tuesday, November 30, 2004
10:00 a.m.
Senate Hearing Room 1
AGENDA
1. Call to Order
2. Opening Remarks
3. Non-sunset Audit on the Gila County Transportation Excise Tax
• Presentation by the Office of the Auditor General
• Public Testimony
• Discussion and Recommendations by Committee of Reference
4. Sunset of the Board of Tax Appeals
• Presentation by the Board of Tax Appeals
• Public Testimony
• Discussion and Recommendations by Committee of Reference
5. Sunset of the Municipal Tax Code Commission
• Presentation by the Municipal Tax Code Commission
• Public Testimony
• Discussion and Recommendations by Committee of Reference
6. Adjourn
Members:
Senator Dean Martin, Cochair
Senator Jack Brown
Senator Jorge Garcia
Senator Jack Harper
Senator Marilyn Jarrett
11/19/04 cd
Representative Steve Huffman, Cochair
Representative Ken Clark
Representative Jack Jackson Jr.
Representative Michele Reagan
Representative Steven Yarbrough
Persons with a disability may request a reasonable accommodation such as a sign language interpreter, by contacting the
Senate Secretary's Office: (602)926-4231 (voice). Requests should be made as early as possible to allow time to arrange the accommodation.
Senate Finance and House of Representatives Ways & Means
Committee of Reference
Meeting Minutes
ARIZONA STATE LEGISLATURE
Forty-sixth Legislature - Second Regular Session
SENATE FINANCE AND HOUSE OF REPRESENTATIVES
WAYS AND MEANS COMMITTEE OF REFERENCE
Minutes ofMeeting
Tuesday, November 30, 2004
Senate Hearing Room 1-10:00 a.m.
Chainnan Martin called the meeting to order at 10:03 a.m. and attendance was noted by the
secretary.
Members Present
Senator Brown
Senator Garcia
Senator Harper
Senator Martin, Cochair
Senator Janett
Members Absent
Speakers Present
Representative Reagan
Representative Yarbrough
Representative Huffman, Cochair
Representative Clark
Representative Jackson
Sean Laux, Research Analyst, Senate Family Services Committee
Carol West, Member, Tucson City Council; Vice Chair, Municipal Tax Code Commission
Dot Reinhard, Auditor General's Office
David Patterson, Finance Director, Gila County
Ruben Medina, Executive Director,'Arizona State Board of Tax Appeals
Sean Laux, Research Analyst, Senate Family Services Committee, reviewed the responsibilities
of the Committee of Reference (COR). He noted that sunset hearings will be conducted on the
Arizona State Board of Tax Appeals (BOTA) and the Municipal Tax Code Commission
(MTCC), as well as a non-Slillset audit of the Gila County Transportation Excise Tax.
Sunset of the Municipal Tax Code Commission
Carol West, Member, Tucson City Council; Vice Chair, Municipal Tax Code Commission,
provided historical background on fOlTllation of the MTCC. She stated that the oversight role of
the MTCC has provided a check against inconsistent changes to the Model City Tax Code by
SENATE FINANCE AND HOUSE WAYS AND MEANS
COMMITTEE OF REFERENCE
November 30, 2003
individual cities and towns, as well as a forum for the business corrununity to comment upon
proposed changes and suggest changes of their own. The MTCC meets only when necessary and
operates at essentially no cost to the State, except for minimal staffing by the Arizona
Department of Revenue (DOR). Recognizing the great importance of the local sales tax as a
revenue source for all cities and towns in Arizona, she believes the Commission should be
continued. The MTCC gives the business community a place to object or voice concerns about
this local tax, and consistency in changes to the code, while preserving local authority over the
most important local revenue source.
Mr. Huffman moved that the Committee make a recommendation to
continue the Municipal Tax Code Commission for an additional 10 years.
The motion carried.
Audit on the Gila County Transportation Excise Tax
Dot Reinhard, Auditor General's Office, reviewed the audit performed on the Gila County
Transportation Excise Tax (Attachment 1).
Senator Brown remarked that the funds were not necessarily spent illegally, but for the public
benefit, and cautioned against over-regulating.
Senator Martin stated that he is especially concerned about the gifts with public monies and
suggested that the Committee meet again during the next interim to make sure the
recommendations are implemented.
Senator Brown noted that the problems were COlTected and changes were made. Also, the
Auditor General's Office would let the Members know if the recommendations are not
implemented.
Ms. Reinhard indicated to Mr. Yarbrough that the County agreed to determine the amount of
inappropriate expenditures and compare those against indirect costs for that particular fund
because monies were not transferred to the General Fund for indirect service costs. The County
believes the amount of inappropriate expenditures would be less than the amount that should
have been transferred to the General Fund for indirect costs. If that is the process the County
took to implement that recommendation, it would have to be looked at, but she made the
recommendation that going forward the County should follow appropriate accounting procedures
and transfer that money to the General Fund for indirect service costs. As far as remedies, in the
past the Attorney General's Office was involved in cases where counties inappropriately used
excise tax monies and agreements were established to reimburse the funds appropriately.
Senator Martin asked about non-public groups that received monies. Ms. Reinhard responded
that has not yet been determined, but there is the potential of expenditures that violate public
monies where she does not believe the General Fund could be used to reimburse the Road Fund.
At this point, she is not sure how those would be handled.
Senator Martin could not recall the statutory penalty, but submitted that it is fairly severe.
SENATE FINANCE AND HOUSE WAYS AND MEANS
COMMITTEE OF REFERENCE
November 30, 2004
2
David Patterson, Finance Director, Gila County, stated that he does not know how the auditors
came up with 11 percent in questionable costs. Originally, the auditors conducted a random
sample over three years, pulling 40 items per year, and found one item that was questionable.
Based on that, the auditors said it was an attribute sampling versus a variable sampling, but he
does not believe 1 item out of 120 equates to 11 percent questionable items. The auditors then
started doing judgmental samples, and when that is done, specific items are looked for, and those
cam10t be projected to the population as a whole. Some of the items that were questioned are not
that significant, although they are against the statutes. For example, $500 for Kids Voting out of
$2.5 million for one year and $48 for flowers from the community for someone's funeral. The
Board of Supervisors was notified that those kinds of decisions cannot be made without
identifying that it is for the betterment of the community and initialing the request. The County
is in the process of correcting those items.
Senator M31iin remarked that using money from the transportation plan for the public good
becomes problematic no matter the amount. He requested the specifics of changes that need to
be made, the illegal or inappropriate expenditures, and the plan detailing the fix.
Mr. Patterson indicated to Ms. Reagan that he is not opposed to a review by the Auditor General
in six months, but the presentation by the Auditor General's Office implied that the issue is more
horrendous than it actually is. In fact, the funds were spent inappropriately; however, he believes
the $500 donated to Kids Voting should be allowable. The only problem was that the supervisor
did not initial the request, but believed it was in the best interest of the cormnunity to make the
donation.
Ms. Reag311 commented that if the Auditor General's findings are somewhat inflated, perhaps
another audit would help clear the County's name.
Mr. Patterson advised Senator Martin that Kids Voting is not necessarily beneficial to
transportation as it is to the cormnunity, but it was not public money given to a private charity
that had no benefit to the community. It was not appropriate to be part of the transpoliation tax,
but that is something that has been changed. At one time, the County had three road crews that
were consolidated into one public works. Constituent Services was paid out of the Road Fund,
but that was offset by what the County considers chargeable indirect costs. A decision was made
that was inappropriate because the two could not be identified, so Constituent Services was
pulled from the Road Fund and put into the General Fund where the County began charging the
indirect costs. The County is in the process of making things more compartmentalized, which is
also why a new financial accounting system will be implemented in J31mary 2005.
Mr. Huffman stated that a memo from Mr. Nelson, the current County Manager, states that he
agrees to all of the s31nple inappropriate expenditures amounting to over $46,000, the County
needs to improve the auditing process, and there may actually be more than $46,000 that the
County is attempting to identify and develop potential solutions.
Senator Martin stated that he appreciates the efforts that have been made, and therefore, does not
recommend any action on the Legislature's behalf this session, but he would like to follow-up
SENATE FINANCE AND HOUSE WAYS AND MEANS
COMMITTEE OF REFERENCE
November 30,2004
3
with the Auditor General's Office and possibly hold another Committee meeting if the issues
have not been worked out and reimbursement made.
Sunset of the Board of Tax Appeals
Ruben Medina, Executive Director, Arizona State Board of Tax Appeals, conveyed that he has
been in this position since BOTA was created in 1974 and has handled many thousands of tax
appeals in all areas of taxation. The sunset review report submitted to the COR on
September 1, 2004 addresses all of the factors requested by the Committee. The Board consists
of three members and staff includes himself, a hearing officer, and a secretary. There were
previously five full-time employees, but now there are only three due to budget reductions. The
caseload can only be handled because of a decrease in cases from previous years.
He stated that the type of cases that are heard are generally very complex after having gone
through various appeals at DOR and the Office of Administrative Hearings (OAR), which
handles sales and use tax type cases; however, BOTA has a very well qualified board of
professionals. He conveyed that the number of months to process appeals was reduced from
seven-and-a-half in 1999 to four-and-a-half presently. BOTA makes decisions within 30 days
that are disseminated throughout the country because requests are constantly made since many
times the decisions address issues of first impression. In 2002, BOTA completely revised the
rules and procedures, shortening the appeals process.
He anticipated additional appeals to be filed, not only later this fiscal year, but next fiscal year,
mainly because of a $6.5 million appropriation by the Legislature to DOR for the revenue­generating
program. With that, an additional 153 FTEs were appropriated, which will cause
more audits and protests to DOR, and eventually, more appeals to BOTA. If additional funding
is needed for another hearing office, a supplemental may be requested from the Joint Legislative
Budget Committee, but until that happens, additional funding will not be requested.
He indicated to Ms. Reagan that BOTA rules for DOR about 80 percent of the time. From
tracking through the Attorney General's Office, the courts upheld BOTA's decisions about
90 percent of the time.
Mr. Huffman moved that the Committee recommend continuation of the
Board of Tax Appeals for an additional 10 years. The motion carried.
\Vithout objection, the meeting adjourned at 10:48 a.m.
(Original minutes, attachment, and tape are on file in the Office of the Chief Clerk.)
SENATE FINANCE AND HOUSE WAYSAND MEANS
COMMITTEE OF REFERENCE
November 30,2004
4
Agency Response
MUNICIPAL TAX CODE COMMISSION
JANET NAPOLITANO
GOVERNOR
CAROL W. WEST
VICE-CHAIR
KERRY BALLARD
MEMBER
GINNY HANDORF
MEMBER
GREG STANTON
MEMBER
November 16, 2004
Dean Martin, State Senator
Chair, Senate Finance Committee ofReference
Arizona State Senate
1700 West Washington
Phoenix, AZ 85007
KEN FORGIA
CHAIRPERSON
GILBERT LOPEZ
MEMBER
CLAUDIA WALTERS
MEMBER
ELAINE SCRUGGS
MEMBER
ROWLE SIMMONS
MEMBER
VINCENT G. PEREZ
EX-OFFICIO MEMBER
RE: Sunset review of the Municipal Tax Code Commission
Dear Senator Martin:
I have been asked to respond on behalf of Ken Forgia, Chairman of the Municipal Tax Code
Commission to your letter ofAugust 24,2004, with its accompanying questionnaire regarding the sunset
review of the Municipal Tax Code Commission. The answer to your questions are as follows:
1. The objective andpurpose ofestablishing the agency.
The objective and purpose of establishing the Municipal Tax Code Commission was to provide,
through the public hearing process, review and comment on proposed changes to the Model City
Tax Code adopted by the cities and towns in the State of Arizona.
The role of the Municipal Tax Code Commission is to review and comment on any changes in
language to the Model Cities Tax Code ("Code") proposed by the Public, the Unified Audit
Committee or any city that has adopted the Code. The types of changes reviewed by the
Commission is any language for the purpose of describing, defining, deleting, adding or
otherwise modifying taxable activities, exemptions, administrative procedures or regulations as
defined in A.R.S. §42-6053.B.
1600 West Monroe Street, Phoenix AZ 85007-2612 www.revenue.state.az.us
The Commission may hold public hearings for the purpose of reviewing and receiving
comments on the proposed changes from the Cities and any interested parties. Once all the
facts have been presented to the Commission, the changes are evaluated and if any changes
are deemed appropriate the Commission recommends those changes. The Commission's
decision on any particular issue and cities and towns are required to abide by those decisions.
2. The effectiveness with which the agency has met its objective and purpose and the efficiency
with which it has operated.
The Commission has been an effective review body for all issues and changes pertaining to
the Model City Tax Code.
3. The extent to which the agency has operated within the public interest.
The Commission has met its obligation to the public interest in following its purpose and
meeting its objectives.
4. The extent to which rules adopted by the agency are consistent with the legislative mandate.
The Commission has adopted no rules.
5. The extent to which the agency has encouraged input from the public before adopting its
rules and the extent to which it has informed the public as to its actions and their expected
impact on the public.
The Commission has encouraged input form the public by holding public hearings on
changes proposed to the Model City Tax Code. The Commission also maintains a database
of interested parties that are notified of any meetings. The Commission, through its staff
continually updates the public on changes made to the Model City Tax Code, including
changes in rates of taxation which are not subject to any recommendations of the
Commission.
6. The extent to which the agency has been able to investigate and resolve complaints that are
within its jurisdiction.
No complaints, within the purview of the Commission have been brought before it.
7. The extent to which the attorney general or any other applicable agency ofstate government
has the authority to prosecute actions under the enabling legislation.
There are no provisions under the enabling legislation for prosecution by the attorney
general.
8. The extent to which agencies have addressed deficiencies in their enabling statutes which
prevent them from fulfilling their statutory mandate.
There have been no problems fulfilling the Commission's statutory mandate.
9. The extent to which changes are necessary in the laws of the agency to adequately comply
with the factors listed in this subsection.
At this time there are no perceived changes necessary to allow the Commission to adequately
comply with the factors listed in this subsection.
10. The extent to which the termination ofthe agency would significantly harm the public health,
safety or welfare.
Termination of the Commission would leave a gap in the checks and balances necessary to
avoid conflicting changes to the cities taxing statutes and to maintain consistency in the
Model City Tax Code.
11. The extent to which the level of regulation exercised by the agency is appropriate and
whether less or more stringent levels of regulation would be appropriate.
The Commission acts as a deterrent to the enactment of arbitrary changes in the city/town
taxing statutes by individual city/town councils. This is accomplished by bringing other than
routine housekeeping changes to the public awareness and providing an evaluation of the
changes from a source independent of city/town politics.
12. The extent to which the agency has used private contractors in the performance ofits duties
and how effective use of private contractors could be accomplished.
The Commission has not used private contractorsin the performance of its duties.
The membership of the Municipal Tax Code Commission is regulated by A.R.S. §42-6052
and A.R.S. §42-6053. The Director of the Department of Revenue (or his designee) is ex­officio
member, without a vote. Five members are appointed by the Governor, Two
members are appointed by the President of the Senate and two members are appointed by the
Speaker of the House of Representatives totaling nine members who are mayors or council
members of cities or towns that have adopted the model city tax code. The current
Commission is made up as follows: Vice-Mayor Ken Forgia of Peoria (Chairman), Mayor
Elaine Scruggs of Glendale, Councilmember Carol W. West of Tucson, Mayor Rowle
Simmons of Prescott, Councilmember Greg Stanton ofPhoenix, Vice-Mayor Kerry L Ballard
of Snowflake, Vice-Mayor Gilbert Lopez of Coolidge, Vice-Mayor Claudia Walters of Mesa,
Councilmember Ginny Handorf of Pinetop-Lakeside and Vincent G. Perez, Assistant
Director, Department of Revenue sits as Ex-officio member. Joseph Lewandowski, Cities
Program Manager of the Department ofRevenue acts as staff for the Commission.
If I may be of further assistance or provide additional information, please do not hesitate to contact
me.
Very truly yours,
~0{fL~
Joseph H. Lewandowski
Commission Staff
Cities Program Manager
cc: J Elliott Hibbs, Director ADOR
Ken Forgia, Chairman
Commission members
Vincent G. Perez, Assistant Director ADOR
Kitty Decker, House Ways and Means Analyst
Steven Huffman, Representative
Sean Laux, Senate Finance Analyst
League of Arizona
~CIt·le·s A.ND lo~wns
December 15, 2004
1820 W. Washington. Phoenix,AZ 85007. Phone: (602) 258-5786 • Fax: (602) 253-3874
Email: league@mg.state.az.us •Web site: www.azleague.org
Mr. Sean Laux
Senate Finance Committee Analyst
1700 W. Washington St. - Senate Wing
Phoenix, Arizona 85007
Dear Sean:
The Department of Revenue has asked the League to respond to six questions in Senator Martin's
letter regarding the sunset of the Municipal Tax Code Commission (MTCC). This is our response.
1. Describe the role and function of the agency, including major activities/projects,
accomplishments and obstacles to success.
As we stated in our September letter to Senator Martin, the Commission is an integral part of
the compromise established in the late 1980's between the business community and the cities
and towns of Arizona relating to the local sales tax. The initial oversight responsibility of the
Commission over the Model City Tax Code and now the requirement of approval of changes
to the tax code by the Commission gives the business community some consistency and
certainty in dealing with the local sales tax structure. This role has also been a deterrent to
individual city changes to the code meaning there are fewer differences between and among
cities and how they tax. .
By its nature, the Commission reacts to proposed changes although it has in the past, when
appropriate, assumed the role of overseer to required changes to the code. For example,
after the last round of changes pursuant to amendment to state law, the Commission met and
discussed progress toward implementation of the changes. In addition to the Commission,
this also gave the business community and interested taxpayers an opportunity to comment
or complain about how the changes were being implemented or the schedule for
completion. This "forum" concept is an important part of the Commission's role.
In contrast to their work and major accomplishment of implementation of the various
changes to the tax code necessitated by the changes to state law, the Commission has not
been particularly active during the last year or so because no changes were brought forward
by either the cities or the business community. Their work will continue to ebb and flow
depending on issues presented. I do not see any obstacles to their success.
2. There are no full time employees of the Commission. The staffing has been done by the
cities program liaison at the Department of Revenue with only a very minor part of his time
dedicated to the Commission. There are no revenues or fees.
3. The problem or need the Commission is intended to address is the oversight role outlined in
our answer to the first question above.
4. The objectives of the Commission cannot really be quantified since it is set up to react to
proposed changes. Its anticipated accomplishments are to provide the oversight role also
outlined above.
5. There is no other agency with similar, conflicting or duplicate objectives.
6. If the Commission would be eliminated then the important oversight role would be lost
risking the possibility of numerous changes to the tax code by individual cities and towns
thereby creating even more differences among cities and between the cities and the State.
Because of the unique role this Commission plays, I know of no other agency with which it
could be consolidated.
I hope this provides you with the information you need. If not, please let me know and we will do
our best to respond.
Sincerely,
cc: Vince Perez
League of Arizona Cities & Towns Response
League of Arizona
~.~
Cities ANDTowns
September 16, 2004
Honorable Dean Martin
Chairman
Senate Finance Committee
1700 W. Washington St.
Phoenix, Arizona 85007
Dear Senator Martin:
1820WWashington. Phoenix,AZ 85007. Phone: (602) 258-5786. Fax: (602) 253-3874
Email: league@mg.state.az.us. Web site: www.azleague.org
The Municipal Tax Code Commission (Commission) is an integral part of the compromise established in the late
1980's between the business community and the cities and towns of Arizona. The oversight responsibility of the
Commission over the Model City Tax Code (MCTC) provides an excellent forum for municipalities and the
business community to discuss and work on improvements to the local sales tax system in Arizona.
The League of Arizona Cities and Towns interacts with the Commission on a regular basis. Any changes to the
MCTC must be approved by the Commission before a city or town can make any change that deviates from the
current language. The municipalities cannot make changes to the MCTC without having those changes approved
by the Commission. In this role the Commission has been a great place for industry representatives to bring
forward changes they are interested in and for the Commission, currently made up of locally elected officials,
to provide feedback to the industry on how potential changes might affect the incorporated cities and towns of
Arizona.
This role of mediator over the provisions of the MCTC has proven to be valuable and produced consensus on
all of the changes brought before the Commission over the past 15 years. The Commission has seemed to
balance fairly the needs of municipalities with the needs of the business community. Authorizing the
continuation of this commission would be an essential element to continuing the functioning balance between
local control and uniformity. With this we urge the members of this committee of reference to continue the
Commission and allow them to continue to play the role of mediator.
If you have any further questions regarding the Commission, please do not hesitate to contact us.
Sincerely,
Catherine F. Connolly
Executive DireGtor
2003 MTCC Annual Report
MUNICIPAL TAX CODE COMMISSION
JANET NAPOLITANO
GOVERNOR
CAROL W. WEST
VICE·CHAIR
KEN FORGIA
CHAIRPERSON
GILBERT LOPEZ
MEMBER
KERRY BALLARD
MEMBER
GINNY HANDORF
MEMBER
GREG STANTON
MEMBER
December 31,2003
ANNUAL REPORT
MUNICIPAL TAX CODE COMMISSION
MEMBERS
Ken Forgia, Vice Mayor, City of Peoria - Chairman
Carol W. West, Councilmember, City of Tucson - Vice-Chair
Elaine Scruggs, Mayor, City of Glendale - Member
Claudia Walters, Vice Mayor, City of Mesa - Member
Kerry Ballard, Vice Mayor, Town of Snowklake - Member
Gilbert Lopez; Vice Mayor, City of Coolidge - Member
Rowle Simmons, Mayor, City of Prescott - Member
Ginny Handorf, Councilmember, Town of Pinetop-Lakeside - Member
Greg Stanton, Councilmember, City of Phoenix-Member
Vincent G. Perez, Department of Revenue - Ex-officio Member
STAFF
Miguel Teposte, Administrator TPT, DOR
Joseph Lewandowski, DOR Cities Program Liaison
PURPOSE
CLAUDIA WALTERS
MEMBER
ELAINE SCRUGGS
MEMBER
ROWLE SIMMONS
MEMBER
VINCENT G. PEREZ
EX-OFFICIO MEMBER
The Municipal Tax Code Commission was created as a result of Laws 1988, Chapter 107, extended by Laws
1991, Chapter 160 (Appendix 1), and amended by Laws 1994, Chapter 305. It was again amended by Laws 1997,
Chapter 150, amended by House Bill 2193 Chapter 225 in 1999 and further amended by Senate Bill 1513, Chapter
297 in 2000. Through the pUblic hearing process, the Commission is required to review and comment on
proposed changes to the Model City Tax Code adopted by the cities and towns in the State of Arizona. The Model
City Tax Code, on file with the Secretary of State's Office, is a uniform transaction privilege (sales) tax code that
contains varying options within a taxable activity that a city or town can select without the approval of the
Commission. The Commission, in addition to reviewing and commenting on proposed changes to the Code, may
REVENUE BUILDING - 1600 WEST MONROE - PHOENIX, ARIZONA 85007
Municipal Tax Code Commission
Annual Report - 2003
Page 2
recommend changes to language presented and may recommend changes to the Code to all cities and towns.
Specifically excluded from review by the Commission is any increase in rate. All changes adopted by a city or
town are required to be kept on file.
2003 ACTIVITIES
The Municipal Tax Code Commission met once during the 2003 calendar year. The Commission's meeting was
held on September 12, 2003.
The Commission appointed a new chairman and vice-chairman. The new chairman is Mr. Ken Forgia Vice Mayor
of Peoria and the vice-chairman is Ms. Carol W. West Councilmember of Tucson. The Commission heard a
presentation from Byron Smith of the League of Arizona Cities and Towns. Mr. Smith presented for approval an
amendment to Regulation 520 of the Model City Tax Code. The recommended change will allow taxpayers
alternative methods for signing or verifying any report made to the city.
OTHER ITEMS
There were three new members appointed to the Commission: Councilmember Greg Stanton of Phoenix. He
replaces Councilmember Doug Lingner of Phoenix. Vice Mayor Gilbert Lopez. Vice Mayor Lopez of Coolidge
replaces Robert Mitchell of Casa Grande. Mayor Rowle Simmons. Mayor Simmons of Prescott replaces Tom
Eggleston of Glendale. There were also changes made to rates and options by various cities. However, none
required Commission action. The tentative meeting schedule for the 2004 Municipal Tax Code Commission is
listed below.
• January 9,2004
• March 12, 2004
• May 14, 2004
��� July 9, 2004
• September 10, 2004
• November 19, 2004